What Counts As Legal Tender?

We're used to thinking that businesses should be willing to accept payment in any form that suits us, but the reality is a little more complicated.

Picture by reverb

I started thinking about the issue of how you should be allowed to pay for purchases recently after the fairly intense debate over Woolworths' decision to stop accepting debit credit cards. Clearly, the big issue there was that customers felt Woolworths was forcing them to pay extra costs simply to buy goods — a bad idea for any retailer.

However, tied in with those arguments was the notion that if a customer wants to pay, a retailer is obliged to accept that payment method. As one reader put it:

Woolworths is in the wrong for not accepting a credit facility your card has a right to use.

Or as another asked:

Doesn't Australian law say that you can't artificially limit payment options in this way?

Similar questions sometimes arise about Tiger Airways, which only takes credit card payments:

Tiger Airways refuse cash for purchases; are they allowed to refuse currency of the realm?

While there apparently isn't a lot of actual case law on this issue, the reality is that a business can set itself up to accept whatever payment methods it chooses. If you don't want to pay using that method, you can of course take your business elsewhere, but you haven't got grounds for legal action. In reality, few businesses choose to operate that way, precisely because it does annoy customers so much, but it doesn't give you grounds for complaint.

Some payment decisions can become more complicated: eBay's attempts to make PayPal the sole payment method available to buyers faltered on anti-competitive grounds, and the auction giant is now planning to expand its options. However, that was a more complex decision in which choice of payment methods intersected with other issues such as its dominant position in the marketplace.

Indeed, the Reserve Bank points out that in the strict sense, businesses aren't even obliged to accept a cash payment. In a page dedicated to the topic on its site, it says:

It is the Reserve Bank of Australia’s understanding that, although Australian currency has legal tender status, it does not necessarily have to be used in transactions and that refusal to accept payment in legal tender banknotes and coins is not unlawful.

The same page also has a handy guide to just how much small change you're obliged to accept in payment as a business (assuming you're generally willing to accept cash). The rule is actually pretty simple: up to $5 in total for coins smaller than 50 cents, and not exceeding 10 times the face value for coins worth more than that. Again, that doesn't mean businesses can't accept larger amounts of change, but they can't argue that those amounts aren't legal tender.

Lifehacker's weekly Loaded column looks at better ways to manage (and stop worrying about) your money.


    However it is my understanding that the above rules only apply to a "purchase" not a "debt".

    Now IANAL but: taking the above Tiger Airways case, while they can refuse cash and only take credit cards for booking a flight - lets say a week later (after your flight) the credit card payment gets reversed.

    If they want to chase you for the money - you are obliged to pay them, but if you wanted to pay them with cash instead I don't think they can refuse.

    I think this is the section relevant to the "small change" rules. Stops you paying a $1000 bill in 5c pieces.

      The credit card merchant can put a hold on a payer's credit card for the value of those reservation funds for one week, and renew that hold if necessary, to ensure that they do get the reservation fee if you don't perform your part of the deal.

    I believe that in real estae, the agent has to accpet any form of legal tender, regardless of denomination or volume..

      That being said,

      "Legal tender or forced tender is an offered payment that, by law, cannot be refused in settlement of a debt, and have the debt remain in force" ~ Wiki

      "It is also said that "he Reserve Bank Act 1959 and Currency Act 1965 establish that it is not legally required to accept legal tender, even for an existing debt, although failure to do so may be prejudicial in future legal proceedings."

      Our currency is just not clear. You could legally force woolies to take debit by walking out with your trolley then, whilst in the debt. Surely, it would not be worth it although i very interesting prospect.

      Would anyone here be able to try it for us?

        The Reserve Bank's view relates specifically to accepting physical currency though -- not to the use of a debit card. So quite aside from involving theft (which in itself doesn't equate to incurring a debt), the example doesn't hang together.

    Will never by from woolies again - even their petrol won't accept debit card!

    BTW - great photo! Must have been a rare find.

      That's good! Now other woolies customers won't have to pay your fees for you.

    I notice the newspaper is in the photo is The Mercury. Obviously they haven't moved to POS systems in Tasmania yet.

      It is a MPOS (Mechanical Point Of Sale) system. Has very few viruses and even less errors due to lines dropping out or power failures.

      Further more, no card skimmer in the world will work on this MPOS..

    I remember as a protest to one of the supermarket chains that shoppers used 'dirty' tactics to collect a trolley full of shopping and then just leaving it to be all re-shelved as a protest.

    If it comes to the point at the till that they won't take your payment, then leave all your stuff there and suddenly the savings for woolies won't seem that great.

      Unfortunately doing this will just really annoy your check-out chick/chap, ruin his/her day and never get back to anyone important. The unfortunate side-effect of big-business is that when you complain to the shop assistant about x, y or z they have no way of telling anyone about it - unless woolies has changed considerably since I worked there 2003-2006.

      Support your local small businesses whenever possible - shopping at a local market/butcher/green grocer/computer shop etc. supports them and the community and 9 times out of 10 provides you with people who can answer your questions and take your suggestions on board.

        I hate that attitude.

        Yeah, the 15-year-old stock boy putting the groceries back will have a lot of sway in the runnings of the multi-million(billion?) dollar business.

      Or you could just PAY YOUR OWN FEES!

        Why does a debit card have fees that a credit card doesn't?

        For the record, I use a credit card, have paid a total of $2 in interest ever and received free movie tickets for using it so I'm up on that count alone let alone the fact I'm using their money to buy stuff without paying interest for a month.

    I tend to side with Woolworths on this, debt cards cost a lot more than your standard EFTPOS card on a retailer. They are designed and set up in such a way that charges ridiculous fees to the merchant every time a customer uses one. This fee cannot under the merchant agreement cannot be passed onto the consumer as an additional fee either.

    Really, they are pointless especially when every Woolworths shop has EFTPOS services there which is a far more direct form of payment and one that isn't designed to benefit a 3rd party credit card company.

      I would see that as a valid point if Woolworths was a small local business.
      However, Woolworths is a massive company and I can't see them struggling over fees from debit cards.

        They accept credit, and I am(was) fairly certain debit cards don't have any extra fees over using a credit card for the retailer.

    The concept of "legal tender" only applies when there is a pre-existing debt. If you owe someone some money, they are obliged to accept legal tender for payment of that debt.

    Shopping at woolies, flying tiger, etc do not come under this because there is no pre-existing debt. If they won't accept your preferred method of payment you have the choice not to deal with them, but they can't be forced to accept cash unless you actually already owe them money.

    Just to point out, legally the MOST coinage is allowed to be used is $99.99. I thought we learned that you couldn't actually argue against taking the currency.

      Sorry Xheis - your $99.99 limit on coinage is incorrect. The The Royal Australian Mint regularly releases collectable coins, one such coin being the gold two hundred dollar coin ($200). Australian collectable coins are all legal tender and can be used directly as currency or converted to "normal" coinage at a bank. Therefore, the upper limit to pay by coinage would be at least two thousand dollars ($2000)- being 10 x face value. Of course, you'd be crazy to hand over your $200 coins at face value (they're worth a lot more).

    More to the point. Once upon a time the only 'legal tender' one HAD to accept was coin of the realm. Currently, a debtor insists on paying me a debt by cheque, but ~ in an ongoing protest ~ I have closed my bank account and so can't cash a cheque. ("Not negotiable;nominated account holder's account only")

    So what do I do??

    Where did you get the "account holder only"
    nonsense, from a bank? The person, bank or otherwise, has the responsibility of ensuring that the payee of a "not negotiable" cheque is in fact the person receiving credit. The Bills of Exchange Act is a good reference. The banks use "account only" to simplify the transaction for themselves.

    what's in the constitution? if wages have to be paid "in the coin of the realm"how can businesses not accept the only legal method of being given wages?

    by the way whats a 1 cent coin worth today in scrap value anyone still got one?

    What about toll roads. The removal of coin booths has been a great silent money spinner for Government and corporations. Elderly grey nomads visiting a new city for the first time and reaching for the pencil to write down a number to call and veering all over the road caravan in tow, or getting a toll notice with a $10 or $20 admin charge per notice. Maybe geting 10 or so of these around the country on their trips. Automatic tolls should be a bonus for regular users not the the norm applied to the rest of us. Everyday the Government forces more of us to use the private sector (banks credit cards, roads) for Government payments and interactions but that is a different debate.

    it is interesting that a few people have said "legal tender" applies when there is a preexisting debt. My local real estate agent in newcastle is refusing to accept cash for rent paid in arrears and forcing tenants to pay electronically through their payment mechanisms together with a processing fee. the only "fee-free" payment mechanism they accept is a bank cheque. i wonder what is the effect of their refusal to accept cash? is it legal?

    Can postage stamps be used as part payment? I have read that government agencies are obligued to accept them.

    Reserve Bank link no longer works.

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